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Daily Pivots: (S1) 105.57; (P) 107.25; (R1) 109.31; More..

Intraday bias in USD/JPY stays neutral for now as more consolidation would be seen. But upside should be limited by 109.36 minor resistance to bring fall resumption. On the downside, below 106.74 minor support will turn bias to the downside for 104.62 low. Decisive break of 104.62 low will extend larger down trend and target 100% projection of 118.65 to 104.62 from 114.54 at 100.51, which is close to 100 psychological level.

In the bigger picture, price actions from 125.85 (2015 high) are seen as a long term corrective pattern, no change in this view. Apparently, such corrective pattern is not completed yet. Fall from 114.54 is seen as another medium term down leg, targeting 98.97/104.62 support zone. For now, we'd expect strong support from there to contain downside to bring rebound.

Despite the deep selloff in US stocks overnight, Asian markets are rather calm. Sentiments are somewhat lifted as China pledged to provide more stimulus, in particular to private and small companies. At the time of writing, Yen is trading as the weakest one for today, continuing to pare back the "flash crash gains". But it's followed by New Zealand Dollar and then Euro as the next weakest. On the other hand, Australian Dollar is the strongest one, followed by Canadian and then Dollar.

For the week, Yen is overwhelmingly the strongest one. Canadian Dollar followed as second strongest as it wasn't at the center of the flash crash storm. Loonie was also lifted by rebound in oil prices. Dollar is the third strongest. European majors, rather than Aussie, are indeed weakest for the week. Sterling leads the way down on Brexit worries, followed by Euro.

In other markets, DOW closed down -660.02 pts or -2.83% at 22686.232. But it's kept well above key near term support at 22267.42. Thus, recent corrective rebound from 21712.53 low might still extend. S&P 500 dropped -2.48% while NASDAQ dropped -3.04%. Treasury yields suffered another day of deep decline with 10-year yield down -0.107 to 2.554. 30-year yield dropped -0.082 to 2.900. Two year yield dropped to 2.42%, back within Fed's target range of 2.25-2.50% for the first time since 2008.

In Asia, Nikkei closed down -2.26% to 19561.96, catching up others as it's back from holiday. Hong Kong HSI is up 1.34%. China Shanghai SSE is up 1.34%. Singapore Strait Times is up 1.13%.

Chinese Premier Li pledged to step up countercyclical measures

The Chinese State Council noted in a brief statement in its website that Premier Li Keqiang pledged to step up "countercyclical adjustments" of macro policies. The comments were made when Li at a meeting with officials of the country's banking and insurance regulator after visiting Bank of China, Industrial and Commercial Bank of China and China Construction Bank. Measures will include tax cuts, targeted lowering of reserve requirements to help small and private companies.

China MOFCOM confirmed trade meeting with US in Beijing on Jan 7-8

China's Ministry of Commerce confirmed in a brief statement that there will be US-China vice ministerial level trade talks in Beijing on Jan 7-8. The date is confirmed in a phone call today. There will be "positive and constructive discussions" in following up to the agreement of Xi and Trump in Argentina. Deputy U.S. Trade Representative Jeffrey Gerrish will lead the team on the US side.

China PMI services rose to 53.9, employment gauge slipped further into negative territory

China Caixin PMI services rose to 53.9 in December, up from 53.8 and beat expectation of 53.1. PMI composite also rose from 51.9 to five-month high of 52.2. However, Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group, warned in the release that "employment gauge slipped further into negative territory, implying increasing challenges to stabilizing employment, which was the broader context of December's central government policies to increase jobs."

Japan MoF to monitor FX closely after flash crash, BoJ may downgrade inflation outlook

After yesterday's spike in Yen, Masatsugu Asakawa, Japan's Vice Finance Minister for International Affairs, said the ministry will "monitor the situation for speculative moves in the foreign exchange market." He noted that "volatility remains quite high high during Sydney trading." And, "currency markets are trading in extremely thin liquidity, exacerbating price movements." For for now, the MoF is not considering to call a meeting with the BoJ on the issue yet.

Talking about the BoJ, Nikkei Asian review reported that BoJ board is considering to lower inflation outlook again due to lower oil prices. For fiscal 2019, core inflation forecast could be lowered to 1%, down from October projection of 1.4%. For fiscal 2020, however, there might be just slight revision to current forecast of 1.5%.

Japan PMI manufacturing: Demand pressures relatively subdued

Japan PMI manufacturing is finalized at 52.6 in December, up from November's 15-month low of 52.2. Markit noted "solid output expansion on average over Q4, but demand pressures remain subdued". Also, "business optimism at lowest since November 2016". Joe Hayes at IHS Markit noted in the release that "Survey data provide reason to remain cautious on growth prospects. Most notably, demand pressures were relatively subdued. Exports also declined on the month amid reports of sluggish sales to Europe and China. The fall in confidence, the seventh time this has been the case in as many months, also suggests that companies are becoming increasingly less bullish on the year-ahead outlook. With the sales tax increase set to come into play, fears over the durability of demand conditions are worrying."

64% UK Conservatives prefer no-deal Brexit to May's deal

According to a survey by YouGov funded by Economic and Social Research Council, many more Conservative Party members opposed to Prime Minister Theresa May's Brexit deal than supported it.

The survey was conducted Dec 17-22, on 1215 Tories. 59% percent opposed May's deal while only 38% were in favor. If there is another referendum, 64% would opt for no-deal Brexit while 29% would pick May's agreement.

Only 11% thought the Irish backstop made sense. 23% thought it's a bad idea but worth to be included to secure the deal. 40% rejected the backstop arrangement.

Looking ahead

The economic calendar is extremely busy today. Eurozone services PMI final will be featured. But more focuses will likely be on Eurozone CPI, PPI and Germany unemployment. UK will also release PMI services.

Later today, Canada will release job data, IPPI and RMPI. US will release non-farm payrolls. USD/CAD will be a pair to watch as it dropped sharply overnight. Rebound in oil prices lifted the Loonie. Dollar was weighed down by soft ISM manufacturing and dovish comments from Dallas Fed Robert Kaplan. More volatility is anticipated in the pair.

USD/JPY Daily Outlook

Daily Pivots: (S1) 105.57; (P) 107.25; (R1) 109.31; More..

Intraday bias in USD/JPY stays neutral for now as more consolidation would be seen. But upside should be limited by 109.36 minor resistance to bring fall resumption. On the downside, below 106.74 minor support will turn bias to the downside for 104.62 low. Decisive break of 104.62 low will extend larger down trend and target 100% projection of 118.65 to 104.62 from 114.54 at 100.51, which is close to 100 psychological level.

In the bigger picture, price actions from 125.85 (2015 high) are seen as a long term corrective pattern, no change in this view. Apparently, such corrective pattern is not completed yet. Fall from 114.54 is seen as another medium term down leg, targeting 98.97/104.62 support zone. For now, we'd expect strong support from there to contain downside to bring rebound.

Economic Indicators Update

For the 24 hours to 23:00 GMT, the EUR rose 0.33% against the USD and closed at 1.1395.

The US dollar declined against its major peers, following disappointing factory data.

Data showed that the US ISM manufacturing activity index dropped to a two-year low level of 54.1 in December, overshooting market expectations for a fall to a level of 57.5. In the prior month, the index had registered a level of 59.3. Moreover, the nation’s mortgage applications dropped 8.5% on a weekly basis in the week ended 28 December 2018, amid worries over economic slowdown and following a decline of 5.8% in the previous week. Additionally, the seasonally adjusted initial jobless claims unexpectedly climbed to a four-week high level of 231.0K in the week ended 29 December 2018, defying market anticipations for a fall to a level of 220.0K. In the prior week, the initial jobless claims had registered a revised reading of 221.0K.

On the other hand, the nation’s ADP private sector employment advanced to a level of 271.0K in December, notching its highest level since February 2017. The ADP employment had recorded a revised rise of 157.0K in the previous month.

In the Asian session, at GMT0400, the pair is trading at 1.1397, with the EUR trading slightly higher against the USD from yesterday’s close.

The pair is expected to find support at 1.1353, and a fall through could take it to the next support level of 1.1308. The pair is expected to find its first resistance at 1.1427, and a rise through could take it to the next resistance level of 1.1456.

Going ahead, traders would await Euro-zone’s consumer price index for December and producer price index for November along with Germany’s unemployment rate for December, set to release in a few hours. Also, the Markit services PMI for December, slated to release across the Euro-zone, will keep investors on their toes. Later in the day, the US unemployment rate, change in non-farm payrolls, average hourly earnings and services PMI, all for December, will pique significant amount of investors’ attention.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the GBP rose 0.76% against the USD and closed at 1.2638.

On macro front, UK's construction PMI fell to a 3-month low level of 52.8 in December, amid escalating concerns over Brexit uncertainty. In the previous month, the PMI had recorded a reading of 53.4, while market participants had expected for drop to a level of 52.9.

In the Asian session, at GMT0400, the pair is trading at 1.2642, with the GBP trading a tad higher against the USD from yesterday's close.

Overnight data showed that the BRC shop price index rose by the most in six-years by 0.3% on an annual basis in December, compared to an advance of 0.1% in the previous month.

The pair is expected to find support at 1.2571, and a fall through could take it to the next support level of 1.2501. The pair is expected to find its first resistance at 1.2680, and a rise through could take it to the next resistance level of 1.2719.

Moving forward, investors would closely monitor UK's net consumer credit and mortgage approvals, both for November followed by the services PMI and Nationwide house price index, both for December, scheduled to release in a few hours.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.45% against the JPY and closed at 107.66.

In the Asian session, at GMT0400, the pair is trading at 108.31, with the USD trading 0.60% higher against the JPY from yesterday’s close.

Overnight data showed that Japan’s final manufacturing PMI climbed to a level of 52.6 in December, as output growth accelerated at its strongest pace in eight months. In the previous month, the PMI had registered a level of 52.2, while preliminary figures indicated a rise to a level of 52.4.

The pair is expected to find support at 107.22, and a fall through could take it to the next support level of 106.14. The pair is expected to find its first resistance at 108.92, and a rise through could take it to the next resistance level of 109.54.

The currency pair is trading above its 20 Hr moving average and showing convergence with its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD slightly declined against the CHF and closed at 0.9868.

Data revealed that Switzerland's SVME manufacturing PMI unexpectedly advanced to a level of 57.8 in December, cofounding market expectations for a fall to a level of 56.9. In the prior month, the PMI had registered a reading of 57.7.

In the Asian session, at GMT0400, the pair is trading at 0.9870, with the USD trading marginally higher against the CHF from yesterday's close.

The pair is expected to find support at 0.9844, and a fall through could take it to the next support level of 0.9819. The pair is expected to find its first resistance at 0.9898, and a rise through could take it to the next resistance level of 0.9927.

With no macroeconomic releases in Switzerland today, investors would look forward to global macroeconomic releases for further directions.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD declined 1.10% against the CAD and closed at 1.3483.

In the Asian session, at GMT0400, the pair is trading at 1.3484, with the USD trading a tad higher against the CAD from yesterday’s close.

The pair is expected to find support at 1.3421, and a fall through could take it to the next support level of 1.3357. The pair is expected to find its first resistance at 1.3597, and a rise through could take it to the next resistance level of 1.3709.

Trading trend in the Loonie today is expected to be determined by Canada’s unemployment rate for December, scheduled to release later in the day.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the AUD rose 0.88% against the USD and closed at 0.7003.

LME Copper prices declined 0.5% or $28.0/MT to $5811.0/MT. Aluminium prices declined 1.8% or $32.5/MT to $1825.5/MT.

In the Asian session, at GMT0400, the pair is trading at 0.7029, with the AUD trading 0.37% higher against the USD from yesterday’s close.

Overnight data showed that Australia’s CBA services PMI rose to a level of 52.7 in December, compared to a reading of 52.2 in the preceding month.

Elsewhere in China, Australia’s largest trading partner, the Caixin/Markit services PMI index unexpectedly climbed to a level of 53.9, defying market anticipations for a decline to a level of 53.0. In the preceding month, the PMI index had registered a reading of 53.8.

The pair is expected to find support at 0.6963, and a fall through could take it to the next support level of 0.6896. The pair is expected to find its first resistance at 0.7063, and a rise through could take it to the next resistance level of 0.7096.

Amid lack of economic releases in Australia today, traders would focus on global macroeconomic events for further direction.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, Gold rose 0.44% against the USD and closed at USD1296.20 per ounce, amid broad weakness in the greenback.

In the Asian session, at GMT0400, the pair is trading at 1297.30, with gold trading 0.08% higher against the USD from yesterday’s close.

The pair is expected to find support at 1289.00, and a fall through could take it to the next support level of 1280.70. The pair is expected to find its first resistance at 1303.00, and a rise through could take it to the next resistance level of 1308.70.

The yellow metal is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, Silver rose 1.12% against the USD and closed at USD15.80 per ounce, tracking gains in gold prices.

In the Asian session, at GMT0400, the pair is trading at 15.87, with silver trading 0.41% higher against the USD from yesterday’s close.

The pair is expected to find support at 15.65, and a fall through could take it to the next support level of 15.44. The pair is expected to find its first resistance at 16.02, and a rise through could take it to the next resistance level of 16.17.

The white metal is trading above its 20 Hr and 50 Hr moving averages.